Measuring Liquidity Risk in an Emerging Market: Liquidity Adjusted Value at Risk Approach for High Frequency Data

Rouetbi Emna, Mamoghli Chokri

Abstract


The present paper introduces an enhanced liquidity adjusted intraday value at risk measure named the LIVaR applied to a sample of listed securities in an emerging market; namely the Tunis Stock Exchange (BVMT). Very specific econometric tools were used to perform models that suit the statistical properties of the data and to obtain a more realistic and efficient measure. This methodology was applied to intraday data. It was found that in the BVMT, the liquidity risk is very high. It represents about 25% of the total cost supported by a day trader for the most active stocks of the considered sample. It can also reach more than 40% for the less liquid ones. These results reveal how thin the Tunis stock market is.

Keywords: Liquidity; intraday value at risk; spread; ACD; Monte Carlo simulation.

JEL Classifications: C41; G17


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